Tenants in former Fayette County courthouse get rent break. Who gets the bill?
Tenants in the remodeled Fayette County courthouse will not have to pay rent for three months after those entities had to close or greatly reduce services because of the coronavirus outbreak, courthouse officials said.
The four tenants in the $32 million renovated courthouse pay rent and other fees that total about $510,000 a year. That money is used to pay for the renovated courthouse’s day-to-day operations that include utilities, security and management. The courthouse does not receive a stipend from Lexington city coffers to cover its overhead.
But those four tenants— Visit Lex, the Breeders’ Cup, LexEffect and the Thirsty Fox and Zim’s Cafe — had to close or reduce services resulting a drop in revenue during the coronavirus outbreak, according to Historic Courthouse LLLP, the for-profit board that was created to manage the publicly-owned courthouse.
Zim’s Cafe is the only tenant currently open in the courthouse but only for take out.
Chris Frost, chairman of the Historic Courthouse LLLP board, said the four tenants will have rent deferred for three months — roughly April, May and June. Some tenants paid their April rent. Those tenants will get rents deferred for May, June and July. Those rents will be paid at the end of the tenants’ leases in approximately two years, he said. In addition, because the renovated courthouse is largely closed, fees the tenants pay for common area spaces have also been greatly reduced, shaving operation costs and reducing overhead.
Sally Hamilton, chief administrative officer for the city and a Historic Courthouse LLLP board member, said the board will not need money from the cash-strapped Lexington-Fayette Urban County Government to balance its books. Mayor Linda Gorton has proposed a $372 million budget that includes more than $12.6 million in cuts inside city government and more than $6 million in cuts to outside agencies and nonprofits.
“We have the reserves to cover this and will not be coming back to the city for help,” Hamilton said.
Those reserves are healthy. The Historic Courthouse can operate at a reduced capacity— with deferring rent as needed —for a year, Frost said. It has roughly $340,000 in reserves that can be tapped for lost rental income.
“If we had to defer for a longer period of time, we could go a year,” Frost said. “We are certainly hoping that won’t happen.”
Frost said the board talked to other commercial property managers and learned deferments of rental payments until the end of leases is how many are dealing with cash-strapped tenants.
“We have terrific tenants,” Frost said. “It’s an outstanding mix to the courthouse and it adds to the purpose of the courthouse. We want to preserve those tenants.”
To find new tenants and renovate the space for those new tenants would be costly, Frost said.
If the tenants cannot pay rent after the three months is up, the courthouse group will have to revisit the issue, he said.
“We are fully aware that there may be some difficulties in reopening; some of these tenants may or may not be able to continue with us,” Frost said.
Last week, Gov. Andy Beshear announced more businesses will be reopening by the end of May, including in-person dining at restaurants but with reduced capacity. Bars are allowed to reopen July 1, but with limitations on the number of patrons. Beshear has cautioned those plans could be scratched if COVID-19 cases spike.
That may help Zim’s Cafe and the Thirsty Fox.
But LexEffect, which runs the top floor event space Limestone Hall, may not be able to operate for a while. Visit Lex, the Fayette County tourism board, is largely funded by hotel and motel taxes, which have plummeted due to a drop in hotel bookings since March when most public events were canceled.
The for-profit Historic Courthouse LLLP was created because the city used more than $11 million in tax credits to help finance the project. In addition, the city used $22 million in city money for the renovation. At the time, the city said Historic Courthouse LLLP and other groups created for the courthouse renovations had to be created because governments cannot receive tax credits.
The courthouse was opened in phases in 2018 and was officially rededicated in November 2018.
Documents released last year show the leases for the four tenants generated a total of $287,700 in 2019. In addition, the tenants also pay a monthly fee to maintain common areas — such as the lobby, entranceway, stairs and elevators. That common area maintenance fee generated $222,948 in 2019, documents showed.
The expenses to run the courthouse in 2019 were $362,527, according to Historic Courthouse LLLP’s 2019 annual budget. Some of the big-ticket expenses include $50,600 for utilities, $83,940 for cleaning and $24,300 for security.
That left approximately $148,120 in revenue at the end of 2019, according to its operating budget.
Historic Courthouse LLLP originally declined to release information about its finances in July. It eventually voluntarily turned over the documents in August after the Lexington Herald-Leader filed a lawsuit, arguing the documents should be public under the state’s Open Records Act. The courthouse group still maintains it is not a public entity.
In 2019, all but approximately $1,481 of the $148,120 in profits went to Old National Bank.
Old National Bank purchased nearly $11 million in historic tax credits that helped finance the project. Those tax credits are sold to individuals and businesses, which use them to reduce their tax liability. Old National Bank, as the investor, gets 99 percent of any profits for the first five years.
Frost said Old National Bank will still receive 99 percent of profits as the tax credit investor.
Discussions with Old National about the project and its finances are ongoing, he said. Old National has signed off on the rent deferment and is confident the project has the reserves to cover the loss of income, Frost said.
The city of Lexington approved $22 million in bonds for the courthouse renovation. In 2019, it paid approximately $1.45 million annually on that debt.
This story was originally published May 11, 2020 at 3:31 PM.
